What It Measures
GDP measures the total economic output of the United States. It is calculated using the expenditure approach:
GDP = C + I + G + (X - M)- Where:
- C = Consumer spending (~68% of GDP)
- I = Business investment (~18%)
- G = Government spending (~17%)
- X - M = Net exports (typically negative for the U.S.)
Real GDP adjusts for inflation to show actual economic growth.
Why It Matters
Definitive Growth Measure: GDP is the broadest measure of economic activity and the official arbiter of recessions.Recession Definition: Two consecutive quarters of negative GDP growth is commonly (though not officially) considered a recession.Policy Benchmark: Fiscal and monetary policy aim to support sustainable GDP growth.Global Comparisons: Allows comparison of economic output across countries.
How to Interpret
Annualized Rate: U.S. GDP is reported as an annualized quarter-over-quarter change.Trend Growth: The U.S. economy's long-term growth potential is estimated at 1.8-2.0% annually.Components: Breaking down GDP shows whether growth is driven by consumers, businesses, or government.Revisions: GDP estimates are revised multiple times and can change significantly.
Key Levels to Watch
| Level | Interpretation |
|---|---|
| Above 3% | Strong economic growth |
| 2-3% | Healthy, sustainable growth |
| 1-2% | Below-trend growth, potential slowdown |
| 0-1% | Weak growth, near-stagnation |
| Negative | Economic contraction |